The defendant solicitor had persuaded his client to release a charge, thus advancing the solicitor’s own subsequent charge on the same property. The action was started in the Chancery Division of the High Court. The statement of claim alleged fraud and claimed damages. At the trial the action was treated as action in the tort of deceit and the claim was dismissed for want of proof of actual dishonesty on the part of the solicitor. The Court of Appeal reversed that decision on the facts. It gave judgment in favour of the client.
Held: Fraud in the Chancery Division should be understood as an allegation of equitable (constructive) fraud, not fraud as understood by the common law (sometimes called express fraud). As to the duties of a solicitor to his client they are: 1. A solicitor stands in a fiduciary relationship with his client. 2. A solicitor who enters into a financial transaction with his client is under a fiduciary duty, when advising his client, to make full disclosure of all relevant facts known to him. 3. Liability for breach of fiduciary duty is not dependent on proof of deceit or negligence. Equity imposes duties in special relationships above and beyond the minimal legal duties to be honest and to be careful. Fiduciary duties rest on the idea of trust and of conduct offensive to conscience. 4. The equitable remedies available for breach of fiduciary duty are ‘more elastic’ than the sanction of damages attached to common law fraud and negligence.
In a case of fraudulent misrepresentation: ‘No-one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction.’ From the beginning the courts of equity have regarded themselves as courts of conscience. When courts of equity referred to something as ‘fraud’ it might have nothing to do with deceit, but may refer to unconscionable conduct.
Viscount Haldane LC referred to the ‘more elastic’ remedies of the Court of Chancery than those of the common law courts. He said: ‘My lords, it is known that in cases of actual fraud the Courts of Chancery and of Common Law exercised a concurrent jurisdiction from the earliest times. For some of these cases the greater freedom which, in early days, the Court of Chancery exercised in admitting the testimony of parties to the proceedings made it a more suitable tribunal. Moreover, its remedies were more elastic. Operating in personam as a court of conscience it could order the defendant, not, indeed, in those days, to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury.
But in addition to this concurrent jurisdiction, the Court of Chancery exercised an exclusive jurisdiction in cases which although classified in that Court as cases of fraud, yet did not necessarily import the element of dolus malus. The Court took upon itself to prevent a man from acting against the dictates of conscience as defined by the Court, and to grant injunctions in anticipation of injury, as well as relief where injury had been done. Common instances of this exclusive jurisdiction are cases arising out of breach of duty by a person standing in a fiduciary relation, such as the solicitor to the client, illustrated by Lord Hardwick’s judgment in Chesterfield v Jansen (2 Ves Sen 125).’
‘In Chancery, the term ‘fraud’ thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction.’
As to constructive fraud and the nature of equity, Viscount Haldane said: ‘A man may misconceive the extent of the obligation which a Court of Equity imposes on him. His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the Court to have known and his conduct has in that sense always been called fraudulent, even in such a case as technical fraud on a power. It was thus that the expression ‘constructive fraud’ came into existence. The trustee who purchases the trust estate, the solicitor who makes a bargain with his client that cannot stand, have all for several centuries run the risk of the word fraudulent being applied to them. What it really means in this connection is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience.’
A Court of Equity has always assumed jurisdiction to scrutinize the action of a solicitor who has had financial transactions with his client: ‘It did not matter that the client would have had a remedy in damages for breach of contract. Courts of Equity had jurisdiction to direct accounts to be taken and in proper cases to order the solicitor to replace property improperly acquired from the client, or to make compensation if he had lost it by acting in breach of a duty which arose out of his confidential relationship to the man who had trusted him.’
Since the Judicature Acts, the Courts had been empowered to give both common law and equitable remedies: ‘This action ought properly to have been treated as one in which the plaintiff had made out a claim for compensation either for loss arising from misrepresentation made in breach of fiduciary duty or for breach of contract to exercise due care and skill.
. . The proper mode of giving relief might have been to order Mr Nocton to restore to the mortgage security what he had procured to be taken out of it in addition to making good the amount of interest lost by what he did. A measure of damages may not always be the same as in an action of deceit or for negligence. But in this case the question is of form only and is not one which it is necessary to decide. I am not sure that such an order would have been more merciful to Mr Nocton than the order for an inquiry as to damages which was actually made. At all events Mr Nocton’s advisers did not at any time object or ask for the other alternative and it is too late to ask for it now.’
Judges: Lord Dunedin, Lord Shaw, Viscount Haldane LC
References:  AC 932,
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